Blog Insider – In the Den of the Venture Capitalists [$2 Challenge]

It was only 9:30 AM, and I was already dreading my decision. A gray dress and curly hair amid a wave of business suits and salt and pepper goatees, I had already started to feel a bit out of place at the Federal Communications Commission and their big, shiny, moneyed interior. Listening to the assembled speakers go on and on about IPOs, spectrum, and other terms that I couldn’t quite grasp, I felt a rising sense of panic. I looked down at the three names I was supposed to meet with, and felt hideously small. How the hell did I get here?

I suppose it all started when Mike Green asked me about the big picture for Racialicious – what was our long term goal? If we could wave a wand, what would happen?

My initial response, which seems concrete to me, doesn’t seem to work for a business profile: It would be good to be obsolete. Failing that, it would be good to reorganize, to not need this niche, since the world has stopped being racist on a systemic level.

But since that’s a few years in the works, a more attainable long term goal would be to grow into some kind of culture influencer, like a media company. Why? As I told Mike:

[T]here’s not enough minority-controlled media. There just isn’t. There aren’t that many spaces controlled by minorities, controlled by women that have the power to push back and have the power to discuss issues that are critical to us. To look at things through a different lens. There’s tremendous power in that. In being able to have a stage and to use it for what you will.

So I found myself shifting a bit. At first, my goals were to be financially comfortable, eek out a living and have a job I didn’t hate that was flexible. And now it seems like there’s a bigger responsibility in that I’ve been able to acquire this huge platform and grow it. Now I’m asking, “OK, What can we really do with this?”

Can we provide people with the job training they need? Because that’s one of those things people are up against. They don’t have experience. They don’t have training. They don’t have their first published clips. Can we be that for some people? Can we grow this into something larger? Can we grow this into a media company?

So, I think that’s the direction we’re moving. What does this new media marketplace look like? What does entrepreneurship in media look like online? I feel like there’s tremendous potential in this space to do it.

Q: Why is it important for there to be more Black-owned media and, in particular, women-owned?

A: One reason is the corporate control of media in general: media consolidation. Just the fact there are thousands of media outlets but when you start tracing it’s really owned by basically eight people. (laughs) There just a few companies that control about 85 percent of what you watch and see. And there’s just a few families in control. It’s a small number, maybe 40 or so that have access into the ridiculous range of how we consume media.

And since media is how we understand ourselves and society, media helps to project not only things that provide understanding, like the news, but also projects things that stereotype. And so the media is this very powerful tool and it’s really disconcerting that there aren’t that many institutions dedicated to representing minorities in a fair light.

And the employment practices also reflect that. There’s always a very dismal representation (percentages) of minorities on television, radio and news. It doesn’t matter the format. It’s all the same problem. It keeps going.

So when you have minority-owned organizations, you can help not only become a pipeline for people to receive training to move on, but also as an alternative voice. And you can use that very powerfully.

So, there is a need. When I articulated these same thoughts to our lawyer, she agreed, and sent me a notice for a public hearing:

The FCC will conduct its annual Capitalization Strategies Workshop on November 12, 2010, from 9:00am until 4:30pm in the FCC Commission Meeting Room. We will have panel discussions in the morning by private venture capitalists and a panel to discuss government funding of businesses. We will also have breakout sessions in the afternoon for those businesses who would like feedback from our panelists regarding their business plans.

This workshop was specifically geared toward women and minority business owners. And the word got out – the majority of the room was black and male, by far and away the best represented group. I also spotted a few black women, a few men who appeared to be desi, and a few white men, and one white woman. Still, there were many empty seats.

Now, at this point, some readers may be confused. Venture capital is generally associated with companies who have profit as a primary goal, which we do not. It also provides a shift in power – the Venture Capitalist (VC for short) trades their money for a share in your company, at which point they start calling the shots. For most VCs, the end goal is to cash out with a return on investment – so they do everything they can to get you to profitable and put you in the position to buy them out or sell the company.

Unfortunately, the ChubbyBrains/CB Insight data also provided some statistics about regional bias and the lack of venture capital:

Unlike the data compiled by ChubbyBrains’ Human Capital Venture Capital report, listing California, Massachusetts, and New York as the top locations for start-up founders many Black Web 2.0 start-up founders are located in areas not typically associated with technology start-ups. New York and North Carolina led the pack with 22%. Georgia and Florida came in second with 14% while New Jersey, Southern California, Illinois, and Maryland clocked in with 7% each. Over the last 3 years and after talking to countless entrepreneurs we’ve noticed that most are located on the east coast with a specific concentration in the Mid-Atlantic region. Reason could be attributed to the higher concentration of African-Americans in that area as well as the community that exists their for entrepreneurs. While there is no Silicon Valley like hub the Mid-Atlantic region has served a similar function, fulfilling a few key elements to the type of life-cycle that is needed; mainly mentorship and fostering community. [...]

Eighty-eight percent of Black Web 2.0 start-ups have received no funding from venture capitalist, angel investors, or government grant programs. This is much higher than the national average of 63% of start-ups having not received any outside funding. What stands out to us is the lack of funding but also the increase (in comparison to the national average) of start-ups that are operating with revenue. Black Web 2.0 start-ups are largely bootstrapped but see revenue quicker. In summary there is less of a cushion of “other peoples money” and more urgency placed on building a real business that makes real money, a guideline many start-ups should follow.

And there are other considerations as to why black companies see so little venture capital. As Restructure wrote back in February:

When top technology venture capitalist John Doerr decides which startup company to invest in, he consciously and deliberately chooses white males over women and racial minorities [...] In other industries—and if uttered by someone without a university education—people would call it “sexism”, “racism”, and “ageism”, but not in the technology venture-capital industry. Doerr sees a racial, gender, age “pattern” in which startups are successful, but such “pattern recognition” is misleading when startups led by women, racial minorities, and people over thirty may be unsuccessful because they are discriminated against and denied funding. The pattern may be systemic bias, instead of the inherent superiority of white men (under thirty).

Considering the facts, I thought it would be interesting to go and see how the big business world works. Also, since quite a few of you work in media, have connections in media, etc, I thought it would be a good thing to share. And I would be lying if I didn’t think it would be cool to have our little plan evaluated by people who make companies hugely successful.

And it’s a good thing I did – many of the folks on the panel invested in BET and TVone/Radio One when they were in the nascent stages of development.

Carlos Guzman, head of the Minority Business Development Agency, made some major points about the state of minority business. He explains that the budget for MBDA is around 30 million dollars, a number that is normally “rounded off” in government accounting. So we are automatically dealing with fewer resources. However, he notes that the face of the nation is changing, and “If America wants to be competitive in the future, we have to invest in minority business today.” Guzman cautioned entrepreneurs to focus on metrics: how many jobs are we creating, are we considered for government contracts, how is our business credit, can we get financing? He also added that the search for funding should start locally – most funds are allocated by region. Guzman also mentions that creating infrastructure is huge – he points a project that is creating a telecoms/broadband connection between the Caribbean, Puerto Rico, and Latin America as a success story in progress.

Other government officials noted that major opportunities exist in rural and urban broadband access and adoption. There is also $2 Billion floating around in recovery act funds, so they advised to be on the look out for more opportunities.

They also stressed that folks should discuss what makes your human capital attractive to investors – what makes your team the best to handle these challenges and take your project to the top?

After that, the panel switched, and this time it was private investors up to bat. The folks represented were people who funded BET and TV One back in the day, and are looking for more minority based media, particularly internet content and targeted offerings toward the Asian and Latino communities.

All the VCs stressed that they were there to invest in profit making ventures. They want to get in and get out, and many of them were looking for a sale price of at least three times the amount of the initial investment. So remember, they are going for high growth in industries like telecoms, health care, and entertainment media.

The VCs also recommend dividing your company’s main functions into milestones. Essentially, VCs are trying to match their funds to the milestones your company is trying to reach. So if you are creating a product, you want to divide the growth of your company into stages, and look at the costs associated with each stage. They mentioned you want to show capital efficiency – display your smart use of money, point out where you were able to save money or leverage assets in more than one way.

The VCs cautioned would be proposers to chose their investor wisely. There is a big difference between early stage investment (plan and potential) and late stage investment (when you have cash flow, revenue), so make sure you are targeting the right firm. Additionally, many VCs are not into small funds – they mentioned that you should reach out for funding from friends and family, your own product, and angel investors before approaching a venture capitalist – they want to see a working model before they invest. They also warn that a venture capitalist takes some form of control over your company – so they recommend shopping around. They also recommend approaching entrepreneurs who might be willing to invest in your business at smaller levels – somewhere in $15-$30,000.

More considerations: It will take 4 – 6 months before you receive any money from a VC. The process is not instant. In all situations, they mention it is the personal relationship that gets the deal done – so start developing your reputation and relationships well before you need funding. And they said to network, network, network.

The main thing they wanted us to understand was that there isn’t a lack of capital that is the problem for most investors – it’s a lack of original ideas.

After the meeting, I met with three potential funders – one of whom was Carlos Guzman, the head of the MBDA. Despite all my initial fears, I was amazed by the overwhelming support the VCs had in our little business plan. While we are not pursuing venture capital at this time, it was great to see that these folks all believed in the idea of multiracial focused content, understood the need for creating minority controlled media companies, and believed that starting small is the right strategy.

So, whew. Much to think about. Next time, we will discuss why we aren’t forming as a nonprofit.

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Race, Culture, and Identity in a Colorstruck World

About This Blog

Racialicious is a blog about the intersection of race and pop culture. Check out our daily updates on the latest celebrity gaffes, our no-holds-barred critique of questionable media representations, and of course, the inevitable Keanu Reeves John Cho newsflashes.

Latoya Peterson (DC) is the Owner and Editor (not the Founder!) of Racialicious, Arturo García (San Diego) is the Managing Editor, Andrea Plaid (NYC) is the Associate Editor. You can email us at team@racialicious.com.